7

Discharge & Breach of Contract

Faculty – Prof. Gourav Agrawal

Presented by – Pooja Solanki

Roll No – 28 Section – “D”

DISCHARGE OF CONTRACTS

The cases in which a contract is discharged may be classified as follows:A. By performance or tender.B. By mutual consent.C. By impossibility of performance.D. By operation of law.E. By lapse of time F. By breach of Contract

A. By performance or tender:

When the contract is performed by both the parties and there notthing remains to do, then it is called discharge by performance

Performance of contract is very common way of discharge. It may be

Actual PerformanceWhen both the parties perform their promises.

Attempted Performance or tenderOnly an offer to perform the obligation under the contract.

B. Discharge by mutual consent or agreement: 

The termination of contract by further agreement or consent.Ways to do so:1.Novation2.Rescission

3. Alteration4. Remission 5. Waiver6. Merger

Discharge by mutual consent or agreementNovation

When a new contract is substituted for an existing one between the same parties

When a new contract is substituted for an existing one between one of the parties and a third party.

Novation should take place before the expiry of the time of the performance of the contract.

Discharge by mutual consent or agreementRescission 

Takes place when all or some of the terms of the contract are cancelled.

Could be done by a)mutual consent or b) when one party fails in the performance of contract, the other party could rescind the contract without fear of claim of compensation.

Discharge by mutual consent or agreementAlteration

Modification of one or more terms of the contract by the mutual consent of the parties.

Discharge by mutual consent or agreementRemission

Remission means acceptance of lesser sum than what is contracted or lesser fulfilment of the promise.

Discharge by mutual consent or agreementWaiver

When parties to the contract agree that they shall no longer be bound to the contract 

Restitution

The party rescinding a voidable contract shall, restore the benefit ,so far as may be ,to the part if he has received under the contract from him.

MergerMerger of two or more rights into one contract . When an existing inferior right of party merges into a newly acquired superior right by the same party , it is a merger of rights.

C. BY IMPOSSIBILITY OF PERFORMANCE

(a) Inherent impossibility Known to the partiesUnknown to the parties

(b) Subsequent impossibility

A contracr is discharged by superventing impossiblity in the following cases.

1. When the subject matter of the contract is destroyed

2. death or incapacity of the parties

3. change of law

4. outbreak of war.

D. BY OPERATION OF LAW

1. By death2. By insolvency3. By merger4. Rights and liablities becoming vested in the same person.

5. material alteration

6. loss of evidence of contract

E. By lapse of time

According to law of limitation Act 1963, a contract should be performed with in a specified period

That period is called period of limitation

If it is not performed and no action is taken by the promiseee with in the period of limitation ,he can not take legal action in the court .

In other words , we can say that the contract is terminated.

F. By breach

Where the promisor neither performs his contract nor tender his performances or where the performances is defective , ther eis a breach of contract.

It occurs when a party to the contract does bnot fulfil his contractual obligation or makes it impossible.

Breach of contract may be

Actual Breach of Contract

Anticipatory Breach of Contract

7

Remedies for Breach of

contract

7

WHEN A CONTRACT IS BROKEN, THE INJURED PARTY, HAS ONE OR MORE OF THE FOLLOWING REMEDIES:

Rescission of the contract

Suit for Damages

Suit upon Quantum Meruit

Suit for specific performance of the Contract

Suit for injunction.

7

WHAT IS A REMEDY

A REMEDY IS THE MEANS GIVEN BY LAW FOR THE ENFORCEMENT OF A RIGHT.

7

1. RECISSION

When a contract is broken by one party, the other party may sue to treat the contract as rescinded and refuse further performance. In such a case, he is absolved of all his obligations under the contract.E.g: A promises B to supply 10 Bags of cement on a certain day. B agrees to pay the price after the receipt of the goods. A does not supply the goods. B is discharged from liability to pay the price.

http://topics2c.blogspot.com

THE COURT MAY GRANT RESCISSION, IF

Where the contract is voidable by the plaintiff ; or

Where the contract is unlawful for causes not apparent on its face and the defendant is more to blame than the plaintiff.

72. DAMAGES

Damages are the monetary compensation allowed to the injured party by the court for the loss of injury suffered by him by the breach of a contract.

7

OBJECTS OF AWARDING DAMAGES

It is to put the injured party in the same position, so far as money can do it, as if he had not been injured, I.e, in the position in which he would have been there been performance and not breach.

This is also known as DOCTRINE OF RESTITUION .

(RESTITUTIO IN INTEGRUM)

7

CASE:HADLEY VS BAXENDALE

X’s mill was stopped by the breakdown of a shaft. He delivered the shaft to Y, a common carrier, to be taken to a manufacturer to copy it and make a new one.

X did not make known to Y that delay would result in loss of profits.

By some neglect on the part of Y the delivery of the shaft was delayed in transit beyond a reasonable time.

Held, Y was not liable for loss of profits during the period of delay as the circumstances communicated to Y did not show that a delay in the delivery of the shaft would entail loss of profits to the mill.

7

DAMAGES ARISING NATURALLY – ORDINARY DAMAGES

When a contract has been broken, the injured party can recover from the other party such damages as naturally and directly arose in the usual course of things from the breach.These damages are known as ordinary damages.

E.g.: A contracts to sell and deliver 50 quintals of Farm wheat to B at Rs.475 per quintal, the price to be paid at the time of delivery.

The price of Wheat rises to Rs. 500 per quintal and A refuses to sell the Wheat. B can claim damages at the rate of Rs.25 per quintal.

http://topics2c.blogspot.com

7In a contract for the sale of goods, the measure of damages on the breach of a contract is the difference between the contract price and the market price of such goods on the date of the breach.

If, however, the thing contracted for is not available in the market, the price of the nearest and best available substitute may be taken into account for calculating damages.

Where the subject matter of a contract is goods specially made to order and which are not marketable, the price of the goods is the measure of the damages.

7

COMPENSATION IS NOT TO BE GIVEN FOR ANY REMOTE OR INDIRECT LOSS OR DAMAGE

E.g: A contracts to pay a sum of money to B on a specified day. He does not pay the money on that day.

B in consequence of not receiving money on that day, is unable to pay his debts, and is totally ruined.

A is not liable to make good to B anything except the principal sum he contracted to pay together with interest upto the day of payment.

7

DAMAGES IN CONTEMPPLATION OF THE PARTIES

Damages other than those arising from the breach of the contract may be recovered if such damages may reasonably be supposed to have been in the contemplation of the both of the parties as the probable result of the breach of the contract. Such damages are known as Special Damages, which cannot be claimed as the matter of right.

7

VINDICTIVE OR EXEMPLARY DAMAGES

Damages for the breach of a contract are given by way of compensation for loss suffered, and not by way punishment for wrong inflicted. Hence, “vindictive” or “exemplary” damages have no place in the law of contract because they are punitive by nature.

But in case of

(a) Breach of promise to marry and

(b) Dishonor of a cheque by banker wrongfully when he possesses suffi cient funds to the credit of the customer, the Court may award exemplary damages.

http://topics2c.blogspot.com

7

NOMINAL DAMAGES

Where the injured party has not in fact suffered any loss by reason of the breach of a contract, the damages recoverable by him are nominal.

CASE : BRACE VS CALDER

A firm consisting of four partners employed B for a period of two years. After six months two partners retired, the business being carried on by the other two.

B declined to be employed under the continuing partners.

Held, he was only entitled to nominal damages as he had suffered no loss.

7

DAMAGES FOR LOSS OF REPUTATION

These are generally not recoverable.

An exception to this rule exists in the case of a banker who wrongfully refuses to honor a customer’s cheque.

IF the customer happens to be a tradesman, he can recover damages in respect of any loss to his trade reputation by the breach.

And the rule of law is : THE SMALLER THE AMOUNT OF THE CHEQUE DISHONOURED, THE LARGER THE AMOUNT OF DAMAGES AWARDED. BUT IF THE CUSTOMER IS NOT A TRADESMAN, HE CAN RECOVER ONLY NOMINAL DAMAGES.

7

DAMAGES FOR INCONVINIENCE AND DISCOMFORT

Damages can be recovered for physical inconvenience and discomfort. The general rule in this connection is that MEASURE OF DAMAGES IS NOT AFFECT BY THE MOTIVE OR THE MANNER OF THE BREACH

7

CASE : ADDIS VS GRAMOPHONE CO LTD.

A was wrongfully dismissed in a harsh and humiliating manner by G from his employment. Held,

(a) A could recover a sum representing his wages for the period of notice and the commission which he would have earned during that period; but

(b) He could not recover anything for his injured feelings or for the loss sustained from the fact that his dismissal made it more difficult for him to obtain employment.

7

DIFFICULTY OF ASSESSMENT

Although damages which are incapable of assessment cannot be recovered, the fact that they are difficult to assess with certainty or precision does not prevent the aggrieved party from recovering them.

The court must do its best to estimate the loss and a contingency may be taken into account.

CASE : contd.,

7

Case : CHAPLIN VS HICKS

H advertised a beauty competition by which readers of certain newspapers were to select fifty ladies. H himself was to select twelve out of these fifty. The selected twelve were to be provided theatrical engagements. C was one of the fifty and by H’s breach of contract she was not present when the final selection was made. Held, C was entitled to damages although it was difficult to assess them.

http://topics2c.blogspot.com

7

Cost of decree

The aggrieved party is entitled, in addition to damages, to get the cost of getting the decree for damages. The cost of suit for damages is in the discretion of the court.

7

DAMAGES AGREED UPON IN ADVANCE IN CASE OF BREACH

If a sum is named in a contract as the amount to be paid in case of its breach, or if the contract contains any other stipulation by way of a penalty for failure to perform the obligations, the aggrieved party is entitled to received from the party who has broken the contract, a reasonable compensation not exceeding the amount so named.E.g: A contracts with B to pay B Rs.1,000 if he fails to pay B Rs.500 on a given day. B is entitled to recover form A such compensation not exceeding Rs.1000 as the court considers to be reasonable.

7

LIQUIDATED DAMAGES AND PENALTY

Liquidated damages represents a sum, fixed or ascertained by the parties in the contract, which is a fair and genuine pre-estimate of the probable loss that might ensue as a result of the breach, if it takes place.A penalty is a sum named in the contract at the time of its formation, which is disproportionate to the damage likely to accrue as a result of the breach. It is fixed up with a view to secure the performance of the contract.

7

3. QUANTUM MERUITIt means “AS MUCH AS EARNED”A right to sue on a quantum meruit arises where a contract, partly performed by one party, has become discharged by the breach of the contract by the other party. The right is founded not on the original contract which is discharged or is void but on an implied promise by the other party to pay for what has been done.

7

4. SPECIFIC PERFORMANCEIn certain cases, damages are not an adequate remedy. The court may, in such cases, direct the party in breach to carry out his promise according to the terms of the contract. This is a direct by the court for Specific Performance of the contract at the suit of the party not in breach.

7

CASES WHICH FALL UNDER SPECIFIC PERFORMANCE

(A)When the act agreed to be done is such that compensation in money for its non-performance is not an adequate relief.(B) When there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done.(C) When it is probable that the compensation in money cannot be got for the non-performance of the act agreed to be done.

SPECIFIC PERFORMANCE WILL NOT BE GRANTED WHERE:

Damages are an adequate remedy

The contract is not certain, or is inequitable to either party

The contract is in its nature revocable

The contract is made by trustees in breach of their trust

The contract is of a personal nature E.g: contract to marry

The contract is made by a company in excess of its powers as laid down in its M.O.A

The court cannot supervise its carrying out E.G. Building contracts

7

5. INJUNCTIONWhere a party is in breach of a negative term of a contract, the court may , by issuing an order, restrain him form doing what he promised not to do. Such an order of the court is known as an “Injunction”.

Case:LUMLEY VS WAGNER

W agreed to sing at L’s theatre, and during a certain period to sing nowhere else. Afterwards W made contract with Z to sing at another theatre and refused to perform the contract with L. Held, W could be restrained by injunction form singing for Z.

Thank YouSir